For

Argument FOR Proposition One

Our Co-op has been phenomenally successful. The Davis Food Co-op is one of the healthiest in the country, with sales that have doubled since our last renovation in 1997. This growth has created challenges we must face, and soon. With cracked flooring, energy inefficient compressors, cramped back stock areas and bottlenecks in the store, we’re past due to renovate.

For over a year now, Co-op staff and Directors have worked with architect John Sutti — a national leader in grocery store design — to develop a renovation plan that will ensure continued success for our Co-op in the years to come.

Your Co-op Board of Directors and staff are asking for membership approval to borrow $3,690,000 for the renovation. Conservative financial projections of 8.5% sales growth show that the Co-op can handle this level of debt and still generate a positive cash flow – without raising prices.

The loan amount will cover renovation of the entire building in four consecutive phases. The four-phase plan takes a holistic approach to renovation, treating each phase as part of the larger project. By renovating under the four-phase plan, we will have better control of spending throughout the process.

The current plan addresses customer and operational needs as outlined in our strategic plan: Benefits include:

Expanded shelf space and selection storewide.

New flooring, lighting and fixtures.

Elimination of bottlenecks in the store.

Improved deli, hot buffet and juice bar.

Improved checkout and customer service counter.

Workplace safety improvements.

New energy efficient compressors and fixtures to decrease breakdowns and increase selection.

Indebtedness carries risk, but there is greater risk to not improving the shopping experience and facilities. Competitive parity, workplace safety, and facility improvements are necessary to future success.

Your elected Board of Directors have examined this renovation carefully and agree it is the smartest and most efficient way for the Co-op to remain a vibrant community center and source for good food for years to come. Co-op Board and staff recommend you vote yes on Proposition 1.

Kathleen Robins: Please vote YES to keep our store strong and safe

I am a former Co-op Director, a veteran of the building purchase campaign and the attempt to put a store in West Davis, a three-time remodel survivor, a Co-op member since 1979, a former employee, a continuing superworker and a shopper who feeds a family of four almost exclusively from the Co-op. I am invested in the store, in every way possible. I want the Co-op to continue to be an active community member, a good employer, a just and socially conscious buyer of goods and a purveyor of healthy food for my family.

In this year’s annual election, we are asked to approve a $3,690,000 loan to remodel and improve the flow and services of our store. The Co-op's layout and functionality have not been visited on a comprehensive scale since the 1992 Very Big Remodel. The smaller, fine-tuning remodel in 1997 was ten years ago, very old by grocery standards. There has been constant improvement taking place in every other successful grocery store around, while we’ve gotten a little bit stuck. The requested loan amount is not small, but neither are the Co-op’s sales, which, at S15,000,000, have doubled since the last time members were asked to approve a loan.

The Co-op’s Board and staff worked long and hard on both the concept and process of this remodel. Their financing projections are conservative and show that this investment will benefit the Co-op in both the short and long term. These folks are not hacks at their jobs- our current success has no small relationship to their efforts and leadership. Staff has made herculean efforts to involve the membership in every step of the process. For the first time in memory, a major store initiative has been proposed with no dissent between the leadership and employees. That’s a truly positive portent.

Opposition rises every time the Co-op proposes to spend a lot of money. Recent letters to the Enterprise show that the tradition is alive and well. Letters from Jack Young and BE Murray in particular are dismissive of the work Directors and employees put into developing the remodel plan and the loan proposal that accompanies it. Their letters contain twisted facts and misleading statements. The tenor of these former Directors’ opposition is disturbing.

Much of the organized anti-remodel sentiment seems to largely emanate from a group of former Co-op leaders working behind the scenes to reignite the Farmtown/West Davis market store idea (voted down by our membership before two other stores failed in that location). That group wanted to delay or alter the remodel plans to consider reallocation of Co-op resources to the second store concept. The Co-op’s Board chose not to consider the proposal when it was presented to them a couple of months ago.

The NO on Proposition 1 group is endorsing two candidates for Board seats: Jack Young and Steve Miller. Given the group’s lack of transparency about their agenda, I am very nervous that a vote for either of these folks is a vote to spend time and energy on a West Davis store.

I think we all support creation of the strongest possible Co-op we can to insure the organization’s sustainability. The deficiencies of the G Street building and the imminent threats to our customer base from prime competitors in brand-spanking new state-of-the-art facilities are undisputed facts. A remodel that fixes what doesn’t work in our store seems a solid strategic response to me. What argument can defend leaving the store’s inefficient and unsafe back room configuration, difficult traffic patterns, lackluster deli program and sub-par front-end technology in their current state? Along with shopper-centric improvements, the proposed remodel will improve both function and flow of our backspace, where the majority of worker injury and risk occurs. By moving refrigeration compressors out of the backspace and up onto the roof, we will greatly expand inadequate and unsafe freezer space, the legacy of the 1959-built Safeway our building evolved out of. We will substantially improve our facility’s quality, a benefit which will extend beyond the life of the loan, which is why we qualify for excellent thirty-year loan terms.

Some suggest that we renovate without a big loan, which means we couldn’t afford to make these important changes. Because it’s tough to tie sales directly to a safer, ergonomically designed work space, it will always be easy to postpone fixing the back area, but it’s not right. The goals of this remodel are not just esthetic or sales based; successful completion of the project will result in a safer, more efficient environment for our employees as well as greater selection, greater efficiency and better use of our space for shoppers.

BE Murray suggested in her letter in the Enterprise that somehow our ownership of the store will be diminished if we take out the requested loan. I know very few people who claim any kind of real estate ownership who don’t also have to claim ownership of a hefty mortgage. Indeed, the first time co-op members could say we own it of the G Street building was the day we all became holders of a very large mortgage.

My husband and I bought our home six years ago, with a mortgage. As the Co-op intends to do, we’ve borrowed still more money to remodel and leverage our investment. We can pay for our latest remodeling for thirty years; or we can pay the debt down early as finances allow, just like the Co-op can. While we now owe about twice what we originally borrowed, our improved home is worth almost four times the purchase price. Our debt to income ratio is very low, but not nearly as good as the Co-op’s. Our earning capacity and finances have improved over time, but the Co-op’s have improved more. Most folks would say we’ve used good sense in managing our financial resources.

Using our store’s equity to leverage financing of a much-needed functional and competitive remodel makes the same good sense. Keeping our workers safe from harm is our responsibility. Protecting our co-op from competition is vital to its continued healthy existence. Please read the documents about the loan proposal prepared by staff, and ask for clarification about anything that isn’t completely clear. Ask for a tour of the backspace and freezers. Afterwards, I hope you’ll join me in supporting the efforts to strengthen and enhance our Co-op for all of our present and future members.

Please vote yes on proposition 1 by May 30.

Sincerely,

Kathleen Robins

PS. The NO people make it a point to tell you that you can change your vote. They're right. If you’ve voted no or yes, and have reconsidered your vote, all you need to do is fill out another ballot and put it in a sealed envelope. On the outside of the envelope, write clearly “second ballot” along with your name, member number and signature and the date. Either mail or take the sealed ballot to the Co-op by May 30.

CON Ballot measure

We urge you to vote against approving the proposed loan. Our reasons are:

As per the March '07 Board meeting, the Remodel-Phase I is to begin this June; a “no” vote will NOT stop the remodel process. We do not oppose a remodel.

We still owe on the 1997 remodel. The General Manager (GM) tells us that grocery stores remodel about every 7-10 years. A realistic projection should be based on this ten-year industry cycle. Instead, by departing from the 7-10 year norm with a 30-year mortgage secured by our store, the appearance of a positive monthly cash flow is created – on paper, anyway.

A thirty-year debt of this magnitude leaves no room to respond to other opportunities arising in the future.

There is no strategic plan that addresses the long range. How will customer growth be generated in a no-growth city? Owners deserve assurances beyond the proposition that current shopper will spend more in a prettier store offering more products.

Core DFC goals include providing products at prices as close to cost as possible while staying profitable. DFC profits are derived from the premium allowed for cash reserves for the store after the costs of doing business are calculated. A 30-year loan at 7% interest considerably increases those costs over the long term; because more than 80% of our shoppers are owners, we will carry the financial burden of this loan in the form of higher grocery prices.

The Audit report (all owners are entitled to review) presents a clearer picture of indebtedness. We owe the National Cooperative Bank. And this year, the Board added $356,000 to our debt in deferred patronage refunds for FY2005-06. This overcharge is being held as an interest-free loan from the owners without a repayment plan and without their consent.

DFC, Inc. does not yet own the entire building; prudence dictates that the purchase (of the "northern 20 foot strip) precede remodel.

Marcelo Campos, David Thompson, Kevin Wolf: Please vote "no."

We have been following this year's Davis Food Co-op election and the discussion in the letters to the editor at the Enterprise, the story in Friday's Sacramento Bee, Davis Wiki and other places.

We all very much support the idea that the Co-op needs a remodel. Together we all have spent a large part of our lives supporting and serving the Co-op. We want the Co-op to be the strongest possible, a safe work environment and to play a wider role in our community. So we are not opposed to a remodel.

However, there have been such a large number of substantial legitimate and reasonable concerns raised about the loan process, the financial outcome and the Co-op's democratic process that we feel should result in a no vote on the loan. We have thought long and hard about what we should do, and we have come to the conclusion that we need to make a joint statement.

1. The lack of information available from the Co-op in the posted election materials and on the Co-op web site does not allow anyone to measure whether the loan as structured is a sound idea. We believe that there is not sufficient financial information to warrant a thoughtful vote on the loan. We believe the vote should be withdrawn, rethought and then brought back to the membership.

2. The by laws of the Co-op (cite Article IX (7) (c) "Equal access. Proponents and opponents of any ballot measure shall have equal and reasonable access to publicity"), clearly require that the con side of a ballot argument have equal access to providing an opposing position to all the members. The con side has filed a number of extensive complaints with the board highlighting the lack of access and fairness as an issue. There is adequate evidence to show that the DFC has not provided equal access to the con side. No questions were allowed at the Annual meeting and no con side was invited to make a presentation. On the two other votes on loans that we three were a part of there was extensive time given to well attended public presentations where all of the facts were provided, all sides allowed to participate and all the voices allowed to be heard. We do not think the actions to suppress con information serve what should be a transparent Co-op. Fair and Equal Access should be guaranteed not restricted.

3. Up until this April and only after requests by former board members did the DFC obtain a strategic plan. Although the DFC claims they have been planning this for years, they have done all of their work around the remodel without having in place a strategic plan.

4. The DFC has been encouraged like almost every other co-op to use member loans, build up more shares and find ways to involve members in lowering the capital costs of the co-op. They have not done this. For all of the years planning for the remodel, they did no capital planning to pay for the remodel. That is why members have an expensive remodel being paid for only by costly debt capital.

5. Questions have been raised about the method by which the DFC retained $355,000 in patronage last year. This money belongs to individual members but serious questions about how it is accounted for have not been answered.

6. This loan format as presented ties the Co-op's hands for 30 years. 30 years is too long in the grocery business to amortize loans. The DFC should come back with a plan that allows for more flexibility to respond to future opportunities.

7. There are a number of other issues too complex to raise here.

If the vote on the loan does not pass, the Co-op has all of the resources to go ahead with the initial phase of the remodel. So a no vote will not stop the first phase. However, a no vote will tell the board that the members want more adequate financial information, a less costly capital plan, less debt capital and a fairer presentation, a public discussion and access for both sides as required by the by laws.

We each have done our best in different ways to request that the Co-op postpone the vote until complete information and a different financing plan was provided. We wished we had been heard. There is a way to do this right for the sake of the DFC.

So it is with regret that we ask DFC member to vote "No" on the remodel, and we ask you to vote for Jack Young and Steve Reynolds for the board. We believe their two voices on the board will add the accounting skills and the legal skills that the DFC needs at this time. We think the board overall will be strengthened by their prudence and professional capacity.

Please email any one of us if you¹d like more information or want to discuss our recommendation.

PS: If you have already voted yes without knowing these concerns you can go to the voting kiosk and vote a fresh ballot. Here are the instructions copied from the DFC web site.

We cannot accept two ballots from one shareholder. However, you can change your vote using the ballots and envelopes available in the store. Write the date on the front of your envelope and that the ballot enclosed supersedes your previous vote. Your new envelope must be signed and sealed, and your name should be legibly printed.

REQUEST FOR CLARIFICATION OF THE AGENDA BEHIND THE NO ON PROPOSITION 1 CAMPAIGN

May 28, 2007

Dear Kevin, David and Marcelo,

(Kevin also sent this letter out on a closed email forum)

While I applaud your love for the organization and long membership and service, I am disturbed by the content of your message. It is the responsibility and entitlement of every member to take the information given to then and form the best opinion/course of action they are capable of. It is also the responsibility of everyone who speaks out, and especially everyone who has a private forum from which to speak, to be scrupulously upfront about their motives, their agendas, and their goals. I believe that folks who take it upon themselves to denounce a project because of “substantial and legitimate concerns” should be models of frank discussion of all agendas and interests at play.

Nowhere in your letter do you acknowledge your interest in developing a second store at the old Farmtown site. Nowhere do you acknowledge that almost everyone involved in the organized “NO” campaign shares that agenda with you, and that a group of you recently went to the Co-op’s Board asking that they alter or delay their remodel plans to consider the second store idea, and that the Co-op Board refused that request.

I wasn’t there, I don’t claim to be able to judge the quality/ reasonableness of your request, or that of the DFC Board’s answer. I only know about this because as a former Director, I am a member of the DFC listserve. I read the emails from you and others running up to the BoD meeting where you presented your ideas, I read Board reports, and then I noticed a change in the tenor of the discussion as I read the frequent emails from Jack Young and confederates demanding document after document from the GM. It was clear you were all very excited by revisiting the Farmtown idea again, and equally clear you were angry that your excitement wasn’t shared by DFC Board and staff.

As one of the staff/Board members who worked very hard to win a yes vote for a Co-op at Farmtown when the site first became available, I empathize with your excitement. As a fairly objective observer who has watched two subsequent stores fail there after we lost that vote, and watched as Sac Natch’s Elk Grove store failed, I empathize equally with the Board. I’m guessing my response is not so different from what most of our members would feel about your efforts, were they generally known.

The loan proposal was developed cooperatively by the elected leaders of the Co-op, management and staff and the membership at large in an open process. While members of your group have accused all of these people of shoddy work at best, and dangerous incompetence at worst, I believe that none of you voiced opposition to the remodel process or substantially participated in the development during the two year planning period that was the run-up to this election. It seems you only became concerned when you had a competing use for the Co-op’s resources. In the absence of frank disclosure of your Farmtown aspirations, I can only surmise that you feel that those interests might damage your credibility as reliable financial advisors about this loan, as indeed they do for me, and others who know about your Farmtown goals.

Please understand me- I have no problem with any desire you may have for the membership to decide whether their resources should all go into improving the G Street store, or be divided into store improvement and development of a satellite site. In fact, I think that would have been an admirable discussion for your group to have started- preferably when the remodel planning first began. My issue is with your methods and the continuing accusations about lack of transparency from DFC Board and Staff, while you shroud your interests in accusations against the board. Age and tenure do not necessarily make us wise, and I’m a firm believer that laurels are only good for resting on, not as the basis of sound policy.

The people who have worked hard on this project have earned at least your respect, if only by virtue of the time and effort they’ve expended, as you should well know, having once been in their place. Each of us must decide for ourselves who has earned our support, and to do that, as your group has said so often, we need to have all the facts. By putting yourself firmly in the middle of this, you obligate yourself to what you demand of DFC’s Board and staff: full disclosure. I would think integrity would demand the same of your two candidates. Members have the right to know what agenda a candidate brings to their board service before they vote for them.

Please amend your letter to fully disclose your interest in the loan and the Farmtown store effort. As a former co-op leader, your fellow members expect and deserve nothing less from you.

Cooperatively,

Kathleen Robins

Jack Young: Vote for a strong Davis Food Co-op

18 May 2007 Vote for a strong Davis Food Co-op

By now all Davis Food Co-op members have received their voter’s pamphlet asking them to approve a nearly $4 million loan. With interest this loan will wind up costing the Co-op members about $8 million over 30 years (for a 10 year benefit). As a former Co-op board member and Treasurer when building was purchased, and as a CPA who has worked with some of the largest Ag Co-ops in California, I urge you to vote NO on this loan.

Phase 1 of the renovation, to ensure the health and safety of staff, and estimated at $1.1 million, could be underway with available funds: The Co-op has about $1.5 million in cash. The 6th street duplex, currently worth about $700,000 and being used as an overflow bin for old paint cans, broken shopping carts and old computer equipment, is an expensive storage space that could be sold.

To finance further renovation, the Board has other options available. The most obvious is a member equity drive, as has been done by most food co-ops in Northern California and was done to buy the DFC building! The Board has discussed this as well as other possibilities.

In addition, while many aspects of the renovation seem to make sense, no cost-benefit analysis or return-on-investment study has been presented to support this $8 million commitment. While the 5-year projected financial statement assumes that sales will increase by nearly twice as much as they have over the past 3 years, the Board admits that this number is based on guesses. Perhaps most importantly, there is NO strategic plan that addresses how these increased sales will be generated in the overall business environment, including up-and-coming competition from Trader Joe’s and Costco.

More analysis is needed before approving this $8 million commitment. Because DFC is a co-op, any financial miscalculations will be felt first and foremost by staff and members. Let’s get it right the first time.

BE Murray: Vote No on Prop 1.

20 May 2007 Dear Editor:

The Annual Elections at the Davis Food Coop are in progress now. About a third of the households in Davis have received Voters Pamphlets and Ballots followed by a glossy four page circular telling my fellow owner-members to vote Yes on Proposition 1. The glossy states “We own our store’s facilities lock, stock, and barrel.” As soon as we place a mortgage on our store, we no longer own it: we are buying it all over again. Under Prop 1, we won’t own our store again for thirty years and we will be paying around EIGHT million dollars for the store we own now. This is like whipping out the credit card, charging it to the maximum limit and then making the minimum monthly payment. Smart? Sensible? No way. We can do Phase I without taking on this huge debt.

• Pages of the Voters Pamphlet are taken up with narrative about Prop 1. According to DFC Bylaws this is supposed to be an “impartial analysis”. In keeping with an apparent pattern of lack of full disclosure, there is no note of who wrote this section. The Board is responsible for selecting who will prepare the impartial analysis. Who did the Board select? Eric Stromberg, Julie Cross, and Doug Walter –all staff. Eric and Julie signed as supporters of the “Pro Argument” Also note that no DFC members who are not on the Board or Staff signed on as supporters of Prop 1. ( Only about 10 members attended the September 2006 public meeting, out of 9000 households.) This proposal is an inside job based upon supposedly “conservative guesses.”

• The only director on the current Board to vote against this Prop was Jared Davis who has a degree in Business Admin. The rest of the Directors voted in favor of this Prop without actually reviewing even a minimum of five year projections. Friends don’t let friends bet the farm or our store on “guesses.”

Let’s support our DFC Board by helping our Directors see the error of their ways. Vote No on Prop 1. In cooperation, Bernadette Murray, DFC owner and former Vice President 2004-2006

Keith and Diane Cary: Vote "no."

20 May 2007 Dear Editor, We'd like to know who paid for the glossy, full-color mailer we recently received from the Davis Food Co-op, promoting a yes vote on Proposition 1, a proposal to borrow $3,690,000 to renovate the store. If the Co-op paid for it, as it appears, we consider that a gross violation of fair election practices, and an example of the kind of wasteful spending implicit in the expansion plan in the first place. We have voted against the proposition because we don't think the Co-op should incur that kind of debt. Bigger is not necessarily better! For our purposes, the Co-op is fine as is. It is never too crowded to shop comfortably. If the Board feels the store needs more space, we suggest they get rid of the gift shop items and return to the core values of the Co-op: providing local organic food and healthy products that are a real alternative to supermarket brands. Faithful Co-op members for 25 years, Keith and Diane Cary

Comments:

Securities Laws And Co-op Member Loan Programs By Laddie Lushin Last year, the U.S. Supreme Court handed down a decision that will have dramatic implications for co-op member loan programs. No longer may loan solicitations be casually and informally conducted; in truth they never could. But new opportunities have been opened for co-ops that are willing to commit the time and resources that a project of this nature demands. The case and the context The Supreme Court decision, reported as Reves v. Ernst & Young,1 involved promissory notes issued by an agricultural cooperative. In order to raise money to support its general business operations, the cooperative carried on an "Investment Program" as an ongoing activity by which it sold its payable-on-demand notes to both members and nonmembers. The notes were unsecured and paid interest that was periodically adjusted to keep it higher than the rate paid by local financial institutions. The Court determined that the notes were securities" within the meaning of federal securities laws. [...end partial quote...]

CHICAGO, IL — May 7, 2007 — Supermarket industry sales increased 5.3 percent in 2006, and same-store sales rose 4.0 percent, the highest mark for this performance measure in more than a decade, according to the Food Retailing Industry Speaks: Annual State of the Industry Review 2007 released here today by the Food Marketing Institute (FMI). These figures were up from 4.6 percent and 2.4 percent, respectively, in 2005. The national chains reported a banner year in sales and profit growth, but the picture was far less rosy for many other retailers. In fact, same-store sales decreased for nearly one-quarter (23.5 percent) of food retailers. All together, nearly half (47.1 percent) lost ground in same-store sales when factoring in inflation. Net income before taxes and extraordinary items decreased to 1.8 percent, from 2.1 percent. Retailers with more than 100 stores reported the highest income numbers at a median of 3.2 percent. "These results are impressive in view of all the rising costs the industry must bear, including energy, healthcare, credit card interchange fees and the imperative to keep improving products and services in today’s extraordinarily competitive marketplace," said FMI Senior Vice President Michael Sansolo. "However, it is also clear that many retailers are struggling to solve the puzzle of cutting costs as much as possible while continually improving customer service." [...end partial quote...]